Managing Corporate Communications in the Age of Restructuring, Crisis, and Litigation

Revisiting Groupthink in the Boardroom

David Silver

• Publisher: J. Ross Publishing
• Year: 2013
• ISBN:
  9781604277487
• Edition: 1
• Topic: Betriebswirtschaft
• Subtopic: Öffentlichkeitsarbeit

Corporate executives, lawyers, and board of directors suffer from groupthink when confronted with a crisis, restructuring or litigation, which results in a communications meltdown that hurts a company's number one asset—its reputation. This failure to understand how to communicate in distressed situations results in lost credibility and trust on a global basis in front of many target audiences: customers, employees, vendors, business partners, the media, analysts covering the company, lenders, bankers, regulatory agencies, and elected officials.This book gives examples of corporations who failed to communicate in a crisis, litigation, or restructuring in this era of financial meltdowns. By analyzing real-life examples (Lehman Brothers, BP, Toyota, MGA/Mattel, etc.), it offers innovative solutions and communications strategies for decision makers to help avoid groupthink and keep good reputations intact. If you are a CEO, CFO, general counsel, board of director, or part of the C-suite, understanding how to communicate in a distressed situation is crucial. A public relations nightmare might be just around the corner. Be prepared!

Part I

Case Studies

1

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Managing Reputation in Distressed Markets

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It was Ken Chenault, CEO of American Express, who may have summed it up best. In an interview for Fortune Magazine a few years ago, he said, “We have to remember that reputations are won or lost in a crisis.” There should have been a million great reputations won over the last decade. From Chenault’s premise, it was clear that managing corporate communications in distressed markets was a far more important skill than managing corporate communications in rising and stable markets.

Since World War II, CEOs and senior managers were lionized for providing the engine of growth and success to American corporations. No longer is this the case. The image has been shattered—perhaps beyond repair. In the 1950s and early ’60s, CEOs were the “rock stars” of their day. Now, CEOs are suspected of having nearly brought down the entire financial system, and actual rock stars have greater credibility. The public has been watching a steady stream of well-known executives either being led out of their absurdly luxurious offices in handcuffs or fleeing the wreckage of their posts on golden parachutes. That sense of trust and integrity, which had permeated much of corporate America’s boardrooms, is gone and has been replaced with something corrosive. Groupthink, all too often, has become the only method of defense corporations know how to use in the court of public opinion. And groupthink is a hard sell, even for an accomplished communicator. People sense the arguments are fatally flawed.

Perhaps it is not accidental that common knowledge says the value of a CEO’s good reputation has been downgraded. This is so despite Ernst & Young’s recent study measuring how much a firm’s reputation depended on the reputation of its CEO: a full third of the respondents said the reputation of senior management was almost as important as hard financial data in deciding whether to do business with a firm.

However, now that there are more restructuring and litigation crises going on, this will begin to change. A good reputation will help even more in the competition for capital and customers. Reputation management is an important part of the task of managing communications strategically. So, where can corporate executives go to find out what are the most common mistakes in formulating this strategy? Hopefully, this book can be one useful resource.

Corporations nowadays have to learn to adapt to increasingly volatile global business environments—environments that are far more complex and litigious than ever before. Communication must be more diverse as well as more segmented. It’s a serious paradox that even communication experts have trouble wrapping their minds around. It was much simpler back in the old days of “mass media.” Mass media is still a player, but it is no longer the only player.

Adding to this is the current revival of mergers and acquisitions in the marketplace. With all the corporations that are getting in trouble, the bigger fish are circling the littler fish. Sometimes they are “friendly,” but they often make such pretense, only to bide their time. There are also a slew of crises on the business landscape—with lawsuits, restructurings, and layoffs that can hit any company at any time in its business cycle.

CRISIS AT TOYOTA

In 2010, the world’s leading automaker, Toyota Motor Corporation, started a massive recall and halted production of a number of models in response to accusations of gas pedals getting stuck, causing runaway acceleration. The problem had been reported more than a decade before, in 1999, but the Japanese company failed to respond immediately to growing public anger and resentment—even after a dramatic and much-publicized recording of a 911 call suggested that the supposed defect was directly responsible for four deaths. When the company did respond, it seemed as if executives were being evasive by blaming their suppliers, resulting in a public relations disaster.

Toyota, which for decades had built a stellar reputation with buyers, started exporting cars to the United States more than 50 years earlier and attained the status of the top automaker in the world, known for technical expertise and reliability. When the U.S. Congress launched an investigation into the reported unwanted acceleration, the three major rental companies in the United States cancelled their Toyota orders—Avis alone removed 20,000 Toyotas from its fleet—and the firm’s reputation took an enormous hit. In late January, according to newspaper reports, U.S. Transportation Secretary Ray LaHood ordered Toyota to stop sales to the public. For months, Toyota maintained that the problem was caused by floor mats trapping the accelerator, and although they maintained that these mats were improperly installed by retailers—a claim that was eventually vindicated—it still led to the company’s first major recall of 4.3 million vehicles in 2009. At the beginning of 2010, Toyota recalled an additional 2.3 million vehicles, claiming that certain Toyota models had defective gas pedal mechanisms. In an interview in the Los Angeles Times on January 28, 2010, Jeremy Anwyl, the chief executive of Edmunds.com, the authority on the car industry, said, “The real question is how Toyota moves forward. There are still a lot of questions that Toyota has not provided answers to.”

Toyota not only lost millions in sales but also, and more importantly, it lost credibility and trust in the global marketplace because it did not communicate effectively with the public immediately from the advent of the crisis. With the avalanche of negative press, new problems emerged. By February of 2010, the problem of sticky accelerator pedals had moved into federal courts, with a number of class action lawsuits being filed in federal courts in Los Angeles.

The Daily Journal, the largest legal newspaper in the country, also reported that the automaker spent much of the previous year battling an attack from a disgruntled former in-house counselor, who accused the company of repeated discovery violations in rollover lawsuits. In Japan, executives were concerned about the threat of a U.S. probe into the possibility of electromagnetic interference with the electronic throttle systems. In addition, there were complaints that the Prius was having brake problems. And, when some senior Toyota officials refused to acknowledge the problems with some of its models, the company’s problems snowballed into an avalanche. The National Highway Traffic Safety Administration joined the investigation, and the excellent reputation the company had worked hard to build in the United States marketplace for more than 50 years started to crumble. Toyota had built up a huge reservoir of goodwill decades before, by building factories in the United States and hiring a substantial number of American workers—creating about 175,000 new jobs. But that goodwill seemed to be unraveling in a wave of distressing news, affecting its image, sales, employee morale, and the bottom line.

Akio Toyoda, grandson of the founder of Toyota, Kiichiro Toyoda, took over as president of the company in mid-2009. It is not easy to know his state of mind, of course, but—by saying almost nothing publicly on the occasion of the first recall, and then issuing only a cursory statement on the occasion of the second recall—he failed to bolster public confidence. Rather, quite the opposite occurred. Public opinion rapidly turned against the automaker in the beginning of 2010. As he was attending the global meeting of financial and industrial leaders in Davos, Switzerland, it was clear that a problem of major proportions was swirling around him, with the global financial media hounding him for an explanation to the problems with the cars.

A series of half measures didn’t help matters. One of these was a letter in major newspapers from Jim Lentz, president of Toyota’s U.S. division. Lentz also appeared on NBC’s Today show. But it was all to no avail. From the Wall Street Journal to the New York Times, from the Los Angeles Times to the Washington Post, Toyota was taking a pounding. Other major publications—including USA Today, the Financial Times, BusinessWeek, Forbes, Fortune, and Barron’s—as well as financial television shows on CNBC and national radio talk shows were all painting Toyota in a profoundly negative manner. Elected officials were not far behind, using the opportunity to take to the pulpit and demand investigations, which created an aura of political opportunism.

REPUTATION

The Toyota story is a perfect example of how a failure to communicate initially, when the problem was manageable, created a public relations disaster for a firm that had built up a great deal of goodwill. What makes Toyota’s story so appropriate, as both a study of communication failure and a critique of the typical groupthink response by companies wanting to limit participation in their own bad story, is that Toyota was eventually vindicated on the facts.

The probe into Toyota by the National Highway Traffic Safety Administration and NASA found, “There is no electronic-based cause for unintended high-speed acceleration in Toyotas.” The report attributed the allegations of runaway vehicles to “pedal misapplication” and concluded, “Toyota vehicles are safe to drive.” Toyota was right about their products but wrong in the manner with which it tried to control the message (or refusal to engage the process), and it paid a heavy price for failure.

Reputation is a corporation’s number one asset, and the Toyota study shows how a global company can be successful at building a great line of products and a stellar reputation, but have that reputation nearly destroyed, resulting in the loss of hundreds of millions in sales and profits. By not understanding how to communicate in a crisis through the global financial media—the ultimate gatekeeper of reputation in the court of public opinion—a company is stacking the deck against itself.

All organizations, whether corporations or countries, are greater than the sums of their parts. A corporation has incredible reputational powers beyond their products and services, power which is communicated through their workers and executives. This is the source of their strength and can also be the epicenter of their worst crises. Had Toyota leveraged its reputation into targeted communication at the onset of the scandal, they might have gotten through it relatively unscathed. Of course, in hindsight, knowing that Toyota’s products weren’t to blame gave them the potential to escape unharmed; other companies have found themselves in less fortunate circumstances.

RECOGNIZING THE GROUPTHINK RESPONSE

As the Toyota scandal began to wind down, a new and even bigger story involving a big multinational corporation thrust itself into the headlines. The explosion of the Deepwater Horizon, an offshore oil platform in the Gulf of Mexico immediately caused the deaths of eleven workers, but that tragic loss of life was only the beginning. British Petroleum (BP) owned the Macondo Prospect oil field that Deepwater had been drilling, and the company soon found itself at the center of the largest marine oil spill in recorded history, as millions of gallons of oil and a seemingly never-ending stream of bad news began polluting the Gulf region.

We will discuss the BP disaster in more detail in Chapter 3, but suffice it to say: the fact that two major corporations got into trouble at about the same time was not mere coincidence, as both were victims of groupthink responses. The only antidote to a condition in which good ideas are stifled and poor options are left unchecked by professionals who know better, is effective communication. How a corporation communicates internally and externally will ultimately determine whether it survives or perishes in the court of public opinion—the most important audience an executive or corporation will have. Proper internal communication, engaged by employees who can critically assess a situation and deliver key points up the ladder, is just as essential as the external communication skills of whoever is charged with relaying the message to the public. The amazing thing about groupthink is that its victims include brilliant global executives, who built great brands, but failed miserably to communicate when a crisis hit. Groupthink is not necessarily a disease of incapable people; it is a feeble response from brilliant business and financial executives, who never received the training or learned the skills in business or law school.

Toyota, for instance, spent billions to build a great brand and goodwill in the United States for half a century, but—when it came to the crisis involving the alleged acceleration problems in its cars—they reacted as most corporate executives would, surrendering to the groupthink mentality. They were worse than amateurish; they appeared to be completely untrained for handling the crisis. The same was true for BP in the Gulf. Both companies blamed outside vendors at first, but that did not resonate well with a public fearing for its safety. The companies followed by issuing unconvincing excuses, and compounded their situations by hiding relevant technical issues.

What is it about highly educated successful business executives who act like neophytes when trying to communicate with the outside world in a crisis? Toyota and BP are not the only global corporations that failed to understand the importance of communication in distressed environments. What is odd is that these corporations tend to have seasoned high-level communication executives in-house, charged with developing effective communications strategies in just such distressed environments. But the problem is not in the suites devoted to communicating with the outside world. The problem is in the corporate boardrooms and C-suites in that these executives have not genuinely learned to embrace what their own communications executives are telling them in tough situations.

When you deal in the court of public opinion, which once only meant mainstream media but now includes a vast blogosphere and millions of socially connected users, you have to communicate your message early and frequently. Relaying your carefully constructed narrative spin becomes a delicate tightrope walk, as your story won’t be believable if it isn’t truthful. It’s the old story told by Mark Twain, who said the basic reason he didn’t lie was that it was too hard to keep track of them all.

It’s good practice to create a storyboard for your corporation with the key components of the narrative in mind. And it’s not only good practice but essential that you have the highest ranking executive of the corporation, who can be articulate in telling the story as your company perceives it, communicate with the public. That executive has to tell the story often and must come off as transparent. If the press or the public detects vague or evasive language, designed to hide facts or allow backtracking later on from your official response, they’ll pounce.

There is nothing wrong with walking into a press conference, having a strong sense of what the reporters want to know, and answering questions in a satisfying way. You will garner real goodwill if you’re sincere, and to be sincere, you have to communicate an attitude of letting the chips fall where they may. Speak honestly about the faults of your company and more importantly, explain your solutions. Don’t hide the facts, be forthright and honest, and don’t talk in “corporate speak,” which is a reputation killer.

If Toyota had called me to ask for my initial ideas to prevent this unfolding groupthink disaster, I would have recommended that Mr. Toyoda himself hold a national press conference in the United States. Doing so right away would have conveyed the notion that Toyoda took the story and the safety implications surrounding it seriously. My advice to Mr. Toyoda would have been to remind the American people, along with the global audience, that Toyota Motors has been part of the American business cycle and numerous communities for more than 50 years, we employ over 175,000 Americans in the United States, and we will address this problem. This approach could have started the process of healing for the victims and given a true explanation to the unfolding disaster.

Had Mr. Toyoda outlined the faults that belonged to Toyota and their solutions to them, and done so often and early, it would have been the start of a successful communication effort. However, corporations are run by human beings, and human beings are prone to failures especially when such a phenomenon as groupthink is pushing them toward it. Groupthink is like a gigantic force of nature: a tsunami tightly drowning the executives in its powerful grasp, and making normally powerful and intelligent executives act in irrational ways.

Having not had a ringside seat for the deliberations inside Toyota which prompted the course of action (or inaction) they embarked upon, I cannot specifically state where the breakdown occurred, only that it very clearly happened. I know this because the Toyota response flies in the face of the fundamentals of effective communication. Whether the rationale for it was not dignifying a bogus accusation, not feeding an unflattering story, or not leaving the company vulnerable to legal response, the only thing T...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• Contents
• Acknowledgments
• Biography
• Introduction
• Web Added Value™
• Part I: Case Studies
• Part II: Theories and Paradigms
• Part III: Remaking Corporate America
• Conclusion
• Bibliography
• Appendix